Allied Glass set to benefit from Scotch decision

Allied Glass has welcomed plans by drinks giant Diageo to invest £1bn in Scotch whisky production over the next five years to meet growing demand in emerging markets.

Diageo, which produces Scotch brands Bells, J&B and Johnnie Walker among others, wants to build a major new distillery and expand a number of its existing 28 distilleries.

The group said the proposals would create 100 Diageo jobs, around 250 construction roles and up to 500 positions from the ‘knock-on effect’ on the Scottish economy.

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The move is also expected to benefit Leeds-based Allied Glass, which makes bottles for Diageo and employs nearly 700 people in Yorkshire.

Managing director Alan Henderson told the Yorkshire Post: “It’s a fantastic, positive statement for the Scotch whisky industry.

“For the glass industry it’s fantastic news. It just gives us better visibility of Diageo’s aspirations for the future and the continuing growth of the Scotch whisky market.

“Allied Glass has invested heavily over recent years to match the requirements for Diageo going forward.

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“For us, it means our investment has been in the right areas.”

The company’s £3m investment, which went live last month, was designed to support the growth of the Johnnie Walker and Buchanan’s brands.

Scotch is the principal growth category for Diageo and represents 23 per cent of the group’s sales volumes and 27 per cent of net sales value.

It shipped 17.8 million cases of Johnnie Walker in the year to June 30, 2011, 4.6 million cases of J&B and 1.5 million cases of Buchanan’s.

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A number of emerging markets are driving the growth in Asia, Africa, Latin America and Eastern Europe, while there are still opportunities in mature markets including the US.

Diageo said it intends to make its contribution to efforts to tackle youth unemployment by taking on around 100 apprentices and graduate trainees over the term of the investment.

Diageo chief executive Paul Walsh said: “Scotch whisky is a significant manufacturing export industry in the United Kingdom, driving domestic investment and job creation through our success in exporting to high growth markets around the world.”

Diageo said it also hopes to build a second new distillery, if global demand for Scotch is sustained at expected levels.

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The group was unable to confirm specific locations for the new facilities but it is understood to be looking in the Speyside and Highlands area and planning applications should be lodged later this summer.

Diageo reported 50 per cent growth in net sales of its Scotch brands with total net sales approaching £3bn this financial year.

The group plans to invest more than £500m in the construction of the distillation and warehousing capacity over the five years, which will also require £500m in working capital for the maturing spirit.

Supporting this investment, Diageo also plans to commit £5m over five years towards community initiatives as part of its sustainability and responsibility programme in Scotland.

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Investors appeared to back the move with Diageo shares rising nearly 2 per cent in early trading.

Chris Pitcher, analyst at brokers Redburn, said: “This year we forecast that Scotch consumption in the emerging markets will be greater than in the developed world.

“This is an important inflection point which highlights the broad-based appeal the product has achieved.”

He added: “Diageo is well-positioned to capture more than its share of this opportunity.

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“If Scotch delivers as forecast, Diageo will enter a new era of above-trend growth.”

Allied Glass is owned by private equity firm Equistone and its management team.

The company employs 690 people at its plants in Leeds and Knottingley.